Government considering rise in PRSI rate as part of budget

Government has previously flagged that the decision to keep the pension age at 66 means gradual increases to PRSI will be needed to top up the pot for future pensions.

A Government source noted that increasing the rate of PRSI would not be a popular move. Picture: Brian Lawless/PA Wire

The Government is exploring whether to increase PRSI for workers and employers as early as January 2024, the Irish Examiner understands.

Coalition leaders will meet on Wednesday with Finance Minister Michael McGrath and Public Expenditure Minister Paschal Donohoe to hammer out the final details for the budget next week.

The entry point for the higher rate of income tax, tax credits, and changes to USC are all under consideration, but a Government source indicated the entry point for the higher tax band rate would not increase as high as €45,000. 

Changes to USC may consist of a widening of the 2% band to move in line with an expected increase in the minimum wage next year. Such a move could cost around €100m.

However, any small change to USC could be eradicated if the Coalition decides this week to increase PRSI. Government has flagged that the decision to keep the pension age at 66 means gradual increases to PRSI will be needed to top up the pot for future pensions.

A Government source said it is possible a PRSI hike could “kick in” in January 2024, with a PRSI roadmap being finalised by Social Protection Minister Heather Humphreys. 

A source said Ms Humphreys is keen to introduce pay-related jobseekers' benefits. This plan, which was previously brought to Cabinet, would see high-earning workers who lose their jobs entitled to a higher rate of social welfare for a period of time before tapering off to the regular jobseeker payment rate. A source said that increasing PRSI in the new year could also give funding for the measure.

“It is possible that it will kick in January 2024, with some level of increase in PRSI for employers and employees,” said the source.

Government might decide it's not the right time or may decide we have to start now, and a decision will be made on that this week.”

The source noted it would not be a popular move, and said the Government is “conscious” that there have been cost increases on employers including statutory sick pay and an expected rise in minimum wage coupled with an auto-enrolment scheme for pensions due next year.

However, the source said, an increase in PRSI will have to happen due to the decision to keep the pension age at 66, adding this is “in the mix” for budget day.

Other measures under consideration for next week include:

• Increase in social welfare payments of €10 or more;
• Rent credit for tenants;
• Increase in childcare subsidy;
• Expansion of child benefit;
• One-off lump sum payments;
• Targeted mortgage interest relief.

A second Government source said that households would receive energy credit again, and Coalition leaders are examining whether this will be three €100-€150 credits or two €200 credits.

The restoration of the final excise duty on fuel will likely not go ahead, two Government sources have said.

The budget would focus on housing and the cost of living, and any measure to entice landlords to remain in the market would have to be “meaningful, otherwise it’s probably not worth doing", the source added.

The core budget package is worth €6.4bn. A €4bn non-core package for Ukrainian refugees and covid spending has been agreed. The package for temporary one-off measures has to be finalised this week.

"There is always a few surprises,” the source said.